Capital Controls for Crisis Management Policy in a Global Economy
American Economic Journal: Macroeconomics
vol. 14,
no. 1, January 2022
(pp. 60-82)
Abstract
Capital controls may be justified as a policy to combat a financial crisis. But for large economies, capital controls may have substantial spillovers to the rest of the world. We investigate the case for capital controls in a large open economy, when domestic financial constraints may bind during a crisis. When the crisis country is indebted, it must trade off the desire to tax inflows to improve the terms of trade and tax outflows to ease financial constraints. This trade-off renders noncooperative use of capital controls ineffective as crisis management policy. Effective use of capital controls for crisis management requires international cooperation.Citation
Davis, J. Scott, and Michael B. Devereux. 2022. "Capital Controls for Crisis Management Policy in a Global Economy." American Economic Journal: Macroeconomics, 14 (1): 60-82. DOI: 10.1257/mac.20200073Additional Materials
JEL Classification
- F23 Multinational Firms; International Business
- F38 International Financial Policy: Financial Transactions Tax; Capital Controls
- F41 Open Economy Macroeconomics
- G01 Financial Crises
- H21 Taxation and Subsidies: Efficiency; Optimal Taxation
- H25 Business Taxes and Subsidies including sales and value-added (VAT)
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